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There aren't a lot of 79-year-olds working on Wall Street these days. A notable exception is Byron Wien, who for the past three years has hung his hat at alternative-investments manager Blackstone Advisory Partners. He began his investment career in 1965 at Brokaw, Schaenen, Clancy, a money-management firm, and later worked at Morgan Stanley for 20 years as a senior investment strategist. He writes a monthly commentary and travels the world to keep tabs on economic, political, and social events. "I'm so anxious to go to work, and I'm almost 80," says Wien. "So to be excited about going to work at that age is a blessing."

One of Wien's strengths is the ability to see the big picture and place it into an investing context. Writing about it, with eloquence and clarity, is another. Nor is Wien afraid to make predictions; each January, he releases a much-anticipated list of surprises that he believes have better than even odds of occurring in the new year. He doesn't always get it right, but says, "I've been right more than I've been wrong." Barron's talked with him recently at Blackstone's midtown headquarters.

Barron's: When we last sat down for an interview four years ago, you were concerned that the problems in the financial system were deeper than realized and that the recovery would turn out to be disappointing.

Wien: Well, there we are, and that's the way it worked out. The problems were deeper. I thought that the subprime problems would not be system-threatening, but they were and they lasted longer. The one thing that saved us was the response to the problems by [Federal Reserve Chairman Ben] Bernanke, [former U.S. Treasury Secretary Hank] Paulson, and [current Treasury Secretary Tim] Geithner. It was very good. Maybe it wasn't perfect; maybe they shouldn't have let Lehman go. But most of their decisions were made under a tremendous amount of pressure in a very short time and with imperfect information. We got out of the mess.

"The world usually ends up better than the pessimists think. We wouldn't have gone this far if the pessimists had always been right." -- Byron Wien
Roger Hagadone

Our recovery has been relatively slow, though. But that's a problem we're condemned with. We're a mature economy in a very competitive world. In other periods of crisis, we haven't had the competition from China, which is now the second-largest economy in the world and an efficient manufacturer. We're also competing with Europe, which is competitive, and Latin America. There are a lot of people out there making stuff, and as a result, corporations are putting a premium on efficiency. That means that they've spent money on capital equipment during this cycle, but it is to get the goods and services out the door with fewer workers. Thus, the one disappointing thing about this recovery is job creation. But there has been another aspect that is important: We overbuilt so many houses prior to 2008, with the result that housing hasn't played a role in the recovery. But I'm optimistic that housing is bottoming this year and will be a positive factor in 2013.

Your writing through the years suggests that, even in the face of daunting obstacles, you're an optimist. Why?

First, the world usually ends up better than the pessimists think. We wouldn't have gone this far if the pessimists had always been right, so history is on my side. But that doesn't mean disasters don't happen. It means, by and large, that we work our way out of them. Yes, I am optimistic now, although it is a measured optimism, because it isn't that I'm unaware of the problems.

We're a democracy, and democracies usually respond effectively to crises, as we did in 2008. We are headed into a crisis now, because government expenditures are about 24% of gross domestic product and tax revenues are 17%, and we are running more than $1 trillion in annual deficits. If we keep doing that, we are going to be in terrible trouble. The blended interest rate on our federal debt is around 2%. If it goes to 3%, and we keep accumulating debts of more than $1 trillion a year, by the year 2020 it will take 20% of total tax revenues to service the debt. It takes 9% now. Regardless of who wins the presidency, there will be some agreement on raising revenues, cutting expenses, and bringing the budget more into line, so I'm optimistic about that.

I'm also optimistic that the U.S. economy is stronger than the numbers reveal. That doesn't mean it is growing at 5%. But it does mean it is probably growing at better than 2%, and they haven't reported a number better than 2% this year. The fourth quarter will be better. Ninety-two percent of the people who want a job are working, and they are going to spend money at Christmas. Retail sales have been pretty good all year, and they are going to be better during the holiday season, and housing is going to turn next year. We aren't going to get much out of capital equipment or exports. But everybody complains about job creation. In the private sector, we've really created quite a lot of jobs, and it is just in the public sector that we've cut back.

Are there more government spending cuts on the way?

Yes, there will probably be more cuts coming. Everybody wants less government. How do you save money in government? You lay off workers. So, in a way, we are headed in the right direction, but growth is slow and we are going to have to adjust to it. One of the ways to think about it, as Carmen Reinhart and Ken Rogoff pointed out, is that a mature economy—especially one that has undergone a financial calamity—generally grows at around 2%. And we aren't happy growing at 2%. So how do we grow faster? One of the ways we did that in the past was to leverage up. Well, you can only do that for so long. We've come to the end of the road on leveraging. We've got to deleverage now, and that is going to have implications for our future growth. We are going to have to adjust to it.

Do you think GDP will be around 2% for many years?

We'll see many years of not-better-than-3% growth. It will create jobs and absorb the new workers coming into the workforce. But, look, we have more people unemployed for 27 weeks or more than ever before in our history. If you lose your job for any reason and you are over 40, it is pretty hard to find another one.

Every January you predict surprises for the coming year. Let's take a quick look at how some of those have turned out, starting with your prediction that the price of oil would drift back to $85 a barrel in the U.S.

Oil has already been at $85. It started the year at $100, and then it went to $115. These surprises are always wrong at first. After it went to $115, it fell to $80, and then it went back up to $100. Now it is around $90 and headed lower.

You also predicted that the S&P 500 would climb above 1400. Last week it was at around 1440.

It started the year at 1250, and I expect it will go to 1500 before the year is out.

Another prediction was that the U.S. economy would get a second wind with GDP growth exceeding 3%.

That's wrong.

And another was that the unemployment rate would drop below 8%.

I thought that unemployment would drop below 8%, and here we are.

You also wrote that a recovering economy and the declining unemployment rate would help President Obama get re-elected. Will that still happen?

He had a very disappointing performance in the first debate, and Romney did well. If he can't turn it around, he's in trouble.

Where do you see the yield on the 10-year Treasury going? Last week it was at 1.72%.

It has to go up. I can't understand why people will lend us money at less than 2% with the financial problems we have. Still, the United States has the strongest military in the world, and we can print money. So if you put a dollar with us, you are sure you are going to get a dollar back. But we are dependent, to some extent, on the kindness of strangers to lend to us, and there is a lot of fear around the world.

So people with great cash reserves in Japan, China, the Middle East, and Europe put money with us and they don't really care about the low yields. They are parking their money. They are not investing their money here, and that is keeping yields low. I thought years ago that yields would rise.

When we last spoke, the 10-year yield was at 3.8%.

And if you told me at the time that yields would be below 2%, I would have said, "Find another line of work; you don't understand this business."

What about gold?

Gold is going higher. Why? Because the major currencies in the world are being debased. The Fed is expanding, the European Central Bank is expanding, and the Bank of Japan is expanding. Fiat currencies are being debased, so gold should be worth more.

It has nothing to do with inflation. We aren't going to have much inflation in the next few years, because inflation is usually responsive to house prices and wages going up. I don't see that happening in the developed world.

What is your take on commodities?

It is a double-whammy. You have the developing world raising its standard of living, and the first thing you do when you raise your standard of living is, you eat better. That means more demand for grain. I am encouraging portfolios to own commodity futures on the basis of that. So that's one whammy. The double whammy is that the world is getting warmer, and that's causing crop failures, as we've seen in corn this summer. So you have increasing demand and decreasing supply, and that should mean higher prices.

What about energy?

We are producing more than 600,000 barrels of oil per day in North Dakota. If I had told you that in the year 2000, you would have said I was delusional. But when God created the earth, he created equal amounts of oil in rock and reservoirs. We've been taking the oil out of reservoirs for 150 years. We just started to take it out of rock, and there is a lot of it. And if we take the oil out of rock and we do a little more drilling, North America could be self-sufficient in oil by 2020. That has enormous economic and geopolitical significance. Throughout my career, I've said that the price of oil is going to go up every year. When it was $40 a barrel, I said it would go to $60, and then to $80, and so on. This is the first year in my career where I said the price would go down. I'm not saying that it will go much below $80, because that's about what it costs to get the oil out of the rock, but you are going to see weak oil prices from this point on.

What makes sense to you when it comes to portfolio asset allocation?

You are going to make money in the emerging markets. The valuations are low. Most people are disenchanted with the emerging markets. And they should be, because while the economies have grown, the stock markets have performed terribly in recent years. But there will be opportunities there. In another theme, large-capitalization multinational stocks have done OK, but they are still attractive. You can buy brand-name, high-quality companies at teen multiples, with predictable growth, solid balance sheets, and reasonable yields. Commercial and office real estate is very attractive. There wasn't the overbuilding in the last cycle that had been traditional in real estate. So real estate turned when the economy turned. Occupancy is increasing and rents are going up. Another area is selected strategies in hedge funds.

Any particular strategies?

Macro is attractive. But the point is, you have to pick the right manager, and there are good managers in every strategy. I would allocate 5% of every portfolio to gold. I would allocate 5% of every portfolio to agricultural commodities and natural resources. I would put 15% of every portfolio in high-yield securities—not traditional high-yield, which has already rallied, but things like leveraged loans, mortgages, and mezzanine financing. I'm also positive on technology and pharmaceuticals. You have got to go where the growth is and where innovation is.